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Top Tips for Rental Property Owners
Investing in property is one of the most common investment routes people take to increase wealth and grow their asset portfolio. However, rental properties can be challenging to manage, especially when it comes to gathering and keeping the right documents, claiming expenses and the rental process. Complying with tax laws and renting your property out the right way are important in improving your chances of making gains on the investment and staying out of trouble with the ATO. Here are a few helpful tips…
Keeping the right records
It is essential to keep all of your income and expense records in relation to your investment property. This ensure that you can claim everything you are entitled to and have proof that you are able to do so in the event of an audit. Another consideration is capital gains tax, which may apply when you sell your rental property (assuming an overall profit upon sale). For this process to be smooth and hassle-free, be sure that you keep all records on file for the entire period you own the property and for a period of 5 years from the date you sell it. Immediate expenses, such as repairs straight after you buy, are not deductible within the same income year. Instead, these are used to work out your profit after you sell. Such situations are made easier when you have full and detailed records of your purchase and expenses relating to repairs, and are aware of what you can and cannot claim.
Claiming borrowing and purchase costs
The Australian Tax Office also has specific rules about what expenses can be claimed and over how long. Borrowing costs $100 or less can be claimed in the same income year that the expense was incurred, however if the expense exceeds $100, the deduction is spread over 5 years. Expenses that fall under this category include loan establishment fees, title search fees and the costs associated with preparing and filing mortgage documents. As for purchase costs, deductions cannot be claimed. These include stamp duty and conveyancing fees, and they are eventually used when you sell your property to calculate your capital gains tax obligations.
Claiming interest on your loan and capital gains tax
You are able to claim a deduction on the interest you pay on an investment property home loan, assuming the whole loan is for the house and none has been used for personal items (e.g. boats, holidays etc.). If that is the case, only the part of the interest associated with the rental property is deductible. Capital gains tax will apply if you sell the property for a value greater than your purchase price plus expenses. A capital gain is to be included in your tax return for that financial year, whereas a capital loss can be carried forward and deducted from capital gains in later years.
Navigating tax laws can be a confusing exercise at times, but getting it right is important. Speak to the tax team at McKinley Plowman on 9301 2200 to see how they can help with investments.
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